When you buy real estate you expect that, over time, it will appreciate in value. If you sell that property for more than you paid, you will have an appreciable gain in value and this triggers a taxable capital gain for the Canada Revenue Agency (CRA).

According to my accountant, this isn’t necessarily a problem. His rationale: If you owe tax it means you’ve made money. And capital gains are taxed at only half your marginal tax rate—one of the more favourable tax treatments offered by the CRA.

The real quandary, for most readers, is how to calculate this capital gains tax when the sale of the property is a tad more complicated than selling your principal home.

For that reason, I address some of the more interesting questions readers have sent regarding the sale of property and how to calculate the taxes owed on their capital gains.

(For more on the basics of the principal residence exemption and how the sale of property doesn’t always produce a capital gain see my Home Owner column in the June 2013 issue of MoneySense.)

Claiming investment expenses

Recently a reader, who had bought and rented out a condo as an investment, asked if he could claim the condo’s special assessment bill as an expense against the potential capital gains tax he’d owe once he sold the condo.

“He’s mixing apples with oranges,” says Albert Luk, lawyer with Devry Frank LLP, a Toronto-based law firm. You can’t claim business expenses against a capital gain—you can only claim deductions against business income (or annual expenses against annual rental income). If you want to reduce your capital gain you need a capital loss—such as selling stock that dropped in value.

Every investor has to make a decision, says Luk, either claim expenses and report the sale as income, or eat the expenses and sell the property as an investment, enabling it to qualify for the preferential capital gains tax treatment.

I won a home!

For the fortunate few, lottery wins are not taxable. That’s great news for one reader who wrote in asking how to calculate the capital gains tax on the sale of a home they won in a regional lottery.

“If you don’t already own a principal residence, the home can be sheltered from taxable gains through the principal residence exemption,” explains Scott Plaskett, president of IRONSHIELD Financial Planning, a fee-only firm in Toronto’s west-end.

If you already own a home, and decide to sell your winnings, the CRA will calculate your capital gains based on the difference in current market value of when you won the home versus when you sold the home. The longer you wait, the greater chance you’ll owe capital gains tax.

“I had a client who won a home in the Princess Margaret lottery,” says Plaskett. The client already had a principal residence and, though appreciative, wanted to sell the winning home quickly. The client sold and paid no tax, as the capital gain was almost nil from when he won to when he sold. “He was just tired of cutting the lawn.”

Renting out your basement

Many readers want to know if their home will continue to qualify for the principal residence exemption if they rent out a portion of their house. Their concern is prompted by stories of people who lost this exemption after years of renting out their basement.

While it’s true—you can lose your principal residence exemption—it really only happens if you rent out more than 50% of your home, or when you decide to claim capital cost allowance on the portion of your home that is the rental.

The CRA recognizes that, over time, depreciable property will become obsolete. Believe it or not, this also applies to real estate. Because of this you are well within your right to offset this loss in value by deducting the depreciation over a period of several years. This deduction is the capital cost allowance (CCA). However, if you claim CCA on your home, you are effectively telling the taxman that this property is used to produce income, and you use lose the opportunity to claim a capital gain, which is taxed much more favourably than income.

But what if you buy a duplex or fourplex and live in one unit while renting out the others? Can you deduct costs, including CCA, to offset the rental income you collect each year and still claim a principal residence exemption? Yes: but you’ll need to clearly document what portion is for personal use and what portion is rental. Only deduct expenses for the rental portion. When you sell, you can claim the principal residence exemption for the portion that was for personal use. To understand how this all works, consider the following:

Buy a duplex for $400,000.

Rent out one unit (for $1,500 per month) and live in another.

Each year you report your annual rental income (about $18,000) and then offset these earnings with expenses associated with the unit. Remember: you cannot deduct expenses, including CCA, for the personal portion of the duplex.

After four years you sell the duplex for $500,000.

Because 50% of the property is used for personal use, you can shelter 50% of the $100,000 capital gain.

But be forewarned: CRA is cracking down on income generated from real estate, and in order to qualify for the principal residence exemption no more than 50% of a principal home can be used for rental purposes. For people thinking of buying and investing homes with a personal use portion you may want to seek out professional advice.

Gifting property (and avoiding probate)

In Canada, you can give gifts to loved ones without tax implications (at least for the recipient). However, this doesn’t mean you can completely avoid taxes when you gift money, stocks, shares or property. “There are tax implications on gifted property as the CRA sees this as a transfer of ownership, which is a deemed disposition,” explains Plaskett.

Still, many parents consider gifting property either upon death or before (by adding adult children to the title) as a great way to transfer property and avoid probate and other taxes.

“Because Canada doesn’t have a gift tax, like the U.S., people often get caught in tax traps when they start gifting without knowing the implications,” explains Luk.

If a parent gifts an adult-child real estate, the CRA considers this transfer of ownership as a disposition: a virtual sale of the property at fair market value. As a result the parent will owe taxes on any appreciable gain on the property (from when they bought the property to when they gifted the property). The parent can avoid these taxes if the gifted property qualifies for the principal residence exemption.

However, the adult-child will have to pay capital gains tax on the property should they decide to sell (and if they already own their own principal residence). The quicker one sells, however, the lower the chances of a capital gain, and the lower the chances of taxes owed. That’s because the capital gain is only calculated from the point of inheritance to the point of disposition. Add your adult-child to title years before you die and you’ll simply be increasing the potential for a capital gain and for taxes owed on that gain.

“It gets even more complicated if you gift property to a spouse or a related minor child,” says Luk, where the gifter may be hit with “an unexpected tax consequence known as the attribution rule.” This is when income, dividends and capital gains are attributed back to the gifter. “The take-away is that not all gifts can be given tax-free, even if there is no gift tax, per se.”

Sever land

Another option some readers have considered is to sever their land and to build two houses—keeping one home as their primary residence and gifting the other house to either a family member or the builder.

“This is a tricky timing issue,” says Plaskett. Anytime there is a change of use in a property the CRA considers this a deemed disposition. If the land originally housed their principal residence, then the gifters are sheltered from capital gains tax. However, the recipient—whether it’s a family member or the builder—would be subject to capital gains taxes if they built and then sold the additional home. That means if a builder built the two homes for $1.1 million, and then took possession of one and sold it for $750,000, the builder would owe tax on the $200,000 capital gain. Worse: because of the builder’s profession, this gain could actually be considered business income by the CRA, which eliminates the capital gain tax treatment on the sale of the house and forces the builder to pay his full marginal rate on the $200,000 profit.

If, however, the recipient chose to keep and inhabit the home as their primary residence, this would “make it a tax-free transaction,” says Plaskett.

Anyone interested in pursuing this type of gift should talk to a professional, as the CRA may have different rules depending on whether you sever the land before or after you build the two homes.

One building, two uses (business and residential units)

Those interested in diversifying their type of real property holdings may have considered (or already bought) a mixed residential/commercial unit. But when it comes time to sell there can be some confusion on how the capital gains tax will be applied.

“Whenever you have a mixed usage property you want to keep meticulous records,” says Plaskett. “Particularly regarding the value of the building or each unit during times of usage change.”

This will require owner to pay for an assessment or ask a realtor to provide a market comparison analysis and an evaluation of the fair market value of the building at each stage, says Plaskett.

By valuing each unit during each phase of use, you can determine your adjusted cost base (ACB)—a tax term that refers to the change in an asset’s book value.

For example, say you buy a home for $250,000 and live in it for five years before deciding to buy a larger property and keeping your initial home as a rental property.

Since you’ve changed the use of the initial house you are subject to capital gains taxes, but since it was your primary residence you can claim the exemption. This won’t work, though, when you go to sell this property a few years later. The good news: You can reduce the taxes owed by determining your ACB for the property.

By obtaining a valuation of the property at the time it stopped being your primary residence, you can shelter those capital gains from future tax repercussions. Here’s how it works:

Buy a home for $250,000 and live in it for five years.

Transition the home from residence to rental property.

At that time, obtain a fair market value report (either from an appraiser or a Realtor) that values your home at $350,000.

Sell the rental property three years later for $400,000.

You will only owe tax only on $50,000, as the additional $100,000 gain is sheltered using the principal residence exemption.

Now, it doesn’t matter if the property is separated into different residential units, or commercial and residential units, the same principles apply.

Be forewarned: the ACB calculation can get a bit tricky. For instance:

You buy a duplex for $750,000.

You move into one unit and rent out the other.

A few years later you move out of your unit and rent it out.

At that time you obtain a fair market value report from a Realtor, which states that the property is currently worth $1 million.

A year later you sell the duplex for $1.1 million.

In this example, only the $600,000 gain would be taxable at half your marginal rate, says Plaskett, as the principal residence portion of the building would be exempt.

Whether or not you made money can get even trickier if your ACB is lower than the current market value of the asset. “Always ask yourself: what did you take out of your jeans to invest,” says Plaskett. “And don’t forget: Anything you receive—whether it’s interest, rental income, or dividend—is part of your investment return.”

Tenants in common

When a married or common-law couple owns a home together the ownership is known as joint tenancy. This allows for the automatic transfer of the property to a surviving spouse without penalty or prior paperwork. (As with anything, this arrangement gets more complicated when you have a mixed or blended family.)

Yet, when adult children inherit a property they become tenants in common. This type of ownership allows two or more people to have equal ownership interests in a property. Unlike joint tenants, however, each can choose the beneficiary that inherits their portion of the property, should they die. Where appropriate, tenants in common may also choose to sell their portion of the property, without consent from the other owners. And tenants in common ownership is not limited to people who inherit property. Many investors also opt for this type of ownership when there are two or more investors in one property.

When it comes to calculating tax, though, each tenant in common is on their own. “Everyone has their own adjusted cost base,” says Plaskett.

For instance, if two adult children inherit a property with a fair market value of $1 million and then rent it out, their adjusted cost base would be $500,000 each. A year later, investor A sells his portion of the property to investor B for $750,000. When investor B sells the property for $2 million, she will only pay half her marginal tax rate on $750,000 of the profit, because her ACB is $1.25 million ($500,000 plus $750,000).

Inheriting international property

In Canada you’re required to report your worldwide income and assets. Any profit earned on the sale of the foreign property is calculated in the same manner as non-primary residence property sold in Canada.

“Even if you own or inherit a home in Florida that doesn’t mean you avoid taxes,” says Plaskett. But there are ways to avoid taxes on foreign property. “If you put the property into a trust, so you don’t personally own the property, then you don’t have to worry about the capital gains once you sell the property,” explains Plaskett. The trust will pay U.S. tax, but will be exempt from Canadian taxation. Get expert help if you’re thinking of setting up a trust, however, as tax treaties and legal methods of minimizing tax can get complicated.

Getting hitched

You’ve fallen in love and you want to move in together, but you both own your own homes, what should you do to minimize taxes?

“There are several options for a couple where each person owns their own principal residence but they want to move in together,” says Albert Luk, lawyers with Devry Frank LLP, a Toronto-based law firm.

The first option is to sell one of the homes. This person could claim the principal residence exemption and avoid paying capital gains taxes. But to qualify for a principal residence exemption you will have to sell the home before getting married (or moving in together). Under tax laws a family unit can designate only one property as their primary residence—and a family unit includes spouses and all dependent children.

The second option is to convert one home into an income producing property by renting it out. You will trigger capital gains taxes but only from the time you started renting out the property to the time you actually dispose of the property. That’s because the CRA considers the change in the use of the property as a deemed disposition—tax talk for a change in use of a property is the equivalent as a sale at the current, fair market value.

If you opt to keep the second home as an income property you can minimize the taxes owed by keeping good records. “Get an appraisal or a property valuation just before you change the use of the property,” says Scott Plaskett, president of IRONSHIELD Financial Planning, a fee-only firm in Toronto’s west-end. That way when you go to sell the home, the capital gains tax will be calculated from the time the home became a rental property, not from when you first purchased the house.

Getting divorced

A few readers ask what the process is for calculating capital gains tax on a home that was part of divorce proceedings.

If the divorce is short and sweet—and both parties have vacated the home in order to quickly sell the property—then taxes would only be owed from the time the home stopped being a primary residence for the couple until the time the property sold.

The longer it takes to sell the property the greater the chance for potentially higher capital gains taxes being owed. (The assumption being that the property will appreciate over time.)

If, however, one half of the couple continues to live in the property and chooses to buy out the other half, there will be no capital gains tax owed as the home is still being used as a primary residence.

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90 comments on “Can you avoid capital gains tax?”

I notice that you've removed the stock market vs real estate article. Is this because you realized it was fundamentally flawed? A retraction would be better so people that did read the article would know it's limitations.

The advantage of having income tax free, capital gains tax free status for your primary residence is not as attractive as one thinks.Since 2009,the TFSA is a great contender for tax free investments.If you were to take $5,500 for each spouse and lets say 2 adult children a total of $22,000 a year in TFSA's would be very good for income splitting and increasing tax free income.

Instead of putting this $22,000 a year towards a purchase of a more expensive house and investing it in conservative provincial strip bonds at 3.63% 25 years maturity it will grow to quite an amount of money.The total TFSA's would be worth $871,868.19 in 25 years.If not needed for 10 more years with no TFSA annual contributions it would be worth $1,245,391.26 invested in 3.63% provincial strip bonds.This would generate $45,207.70 interest per year.

The reason I chose 25 years is because 25 year mortgage amortizations are now the maximum schedule to pay off mortgages .The main selling point of real estate agents,mortgage brokers,lenders etc. is that your primary residence is income tax free,capital gains tax free.They say buy a bigger,more expensive house instead of investing the extra money in other investments.What they don't tell you that there are a great deal of extra expenses,costs ,taxes,fees involved with that extra size house and mortgage.Land transfer taxes,property insurance,CMHC premiums,repairs,maintenance,property taxes,H.S.T. on all these extra costs,fees except on land transfer taxes,lawyer fees,utilities,mortgage interest,furniture costs,etc.

This extra house can cost you so much more than a house you really just need to live in that the income tax free capital gains tax free benefit is completely reduced and costing you more than the capital gains taxes you would of paid.The $22,000 a year could buy an extra house of about $260,000.This means that a house of say $660,000 versus a $400,000 house.

I am saying not to buy the extra $260,000 size house but invest instead in provincial strip bonds at 3.63% in TFSA's.The $22,000 TFSA's in these conservative investments will be a better choice than buying the more expensive $260,000 house and I think that bond yields will be going higher over decades so this is just a base example of using the 3.63% current provincial strip bonds yields.

Just today the same provincial strip bonds jumped 5 basis points and are 3.68%. This small change will mean higher TFSA values.The same $22,000 contributed every year in TFSA's at 3.68% in provincial strips but only for 25 years and 10 more years of compound interest of this balance so in 35 years will be worth $1,259,796.78.

The other value of TFSA's from yesterday May-2-2013 was $1,245,391.26.Today the value of the TFSA's of 3.68% May-3-2013 is $14,405.52 more.You see if bond yields rise to 4.13% or by 0.50% than there will be $152,167.11 more in TFSA's in 35 years by a modest 50 basis points rise.

It is better to invest the $22,000 per year in conservative investments TFSA's and not $260,000 extra house.

I think, The simplest strategy for lowering the amount you owe in capital gains tax is to avoid short-term investments. Long-term investments will almost always have a lower tax rate than short-term investments. In the case of the lowest tax brackets, you'll pay nothing for long-term capital gains on most securities.

Avoiding stamp duty is a simple process. How to avoid stamp duty is achieved by taking advantage of a tax loophole to avoid stamp duty. This loophole has surprisingly remained open for years and numerous home buyers take advantage of this by avoiding stamp duty on a monthly basis.

This whole thing is very confusing for me…could use some help, advice or answers…

Scenario – I was going through a divorce – had no place to live, my sister bought a small house for me to live in, the intent being that I would buy it from her when my divorce was settled. What is going to happen now – when I buy the house from her, I will be paying what she paid 4 years ago (I have had about $20 000 worth of work done and as a result the value of the house has increased about $50 000) – there is no issue between my sister and I – we are both in complete agreement at the price I pay is the same as she paid… my question is what costs are going to be incurred, does the house have to be appraised??…I want to make sure that she in not out of any money etc. as she was a life saver for me.

I have looked into this for a similar situation. Your sister would be charged capital gains on the fair market value of the house, not what she sold it for. You would need it appraised. (do get a real estate lawyer to see exactly how the taxes work in your province)

Question:
Can real estate commissions be included in the ACB – For example. Probated property value $500,000. Sold 2 years later for $600,000. Real estate agent fees $30,000 (5%) Is the Capital Gain based on 100,000 or 70,000

Hi CuriousExecutor:
No. Real estate commissions cannot be used to reduce your profit. As I mentioned in the blog, expenses that would normally be used to reduce income cannot be applied to the reduction of capital gains. If you do, you run the risk of the CRA making a judgement that the property didn't produce capital gains (a profit based on appreciation) but, instead, produced income — which is 100% taxed at your top marginal tax rate. That means if you earned a $100,000 capital gain and your marginal tax rate is 30% you would only pay $15,000 in taxes for the capital gain. If you tried to reduce the profit through deductions and the CRA decided it was income you had earned you would end up paying $21,000 in taxes (based on 30% marginal tax rate and a profit of $70,000 — $100,000 minus the $30,000 realtor commission).
Unfortunately this is a grey area in the tax law BUT the CRA has started a crackdown on real estate profits (income vs. capital gains).
Hope this helps!

What if my husband and I were legally separated, purchased separate homes to live in and then 2 years later reconciled, sold one of the houses and then moved back in with each other into the other ho,e? Would I have to pay capital gains on the home that I sold?

Thank you for the article! I am a little confused though about this paragraph? I am considering selling my Triplex and have been talking with my accountant re capital gains. I live in 1 unit. I was under the impression that the gain would be divided by 3 and mult by 2 to reach the amount to be taxed? This is the statement in the article I am asking about (Thank you!) –> But be forewarned: CRA is cracking down on income generated from real estate, and in order to qualify for the principal residence exemption no more than 50% of a principal home can be used for rental purposes. For people thinking of buying and investing homes with a personal use portion you may want to seek out professional advice.

what if my wife and I have a life estate with our parents and they are living in the home but we are the owners and not living in the home and our parents would like to sell the home and pay us back and keep the profit from the sale, we would like to know how would the capital gains be handled.

I was wondering my brother is the successor of the estate which is a duplex generating a revenue. He decided to leave and transfer his share to me. My question is : will there will be any capital gain where I will be taxed on eventhough I live in the duplex without intention of selling it. I’m a resident in Quebec maybe the laws differ from each province.

I just sold a rental property. In order to get it ready for sale I had to undertake renovations, pay commission to an real estate agent, and pay a lawyer. I suppose the renovations can be covered by the Capital Cost allowance; what about the agent and the lawyer.

If I have a rental property that i rent for, let's say, 5 years. I sell my principal residence then move into my rental. When it comes time to sell my new principal residence (formerly my rental property) can i still benefit from the principal residence exemption since this is now my principal residence.

My mother-in-law, and father-in-law added my wife, and her three siblings to the title of my in-laws house. The in-laws have both died, and now the siblings are selling the in-laws' house. All four siblings already own principal residences. They were added to said title at least twenty years ago. How will capital gains affect them all generally, and my wife specifically? Anyone? Thank you.

Hello,
I live in Quebec and need some advice on a real estate matter. In short, my husband and I purchased my family cottage from my parents in 2000 for $25 000 (municipal evaluation was $46 000). In 2008, I divorced and had to pay my ex $35 000 ( 1/4 of the evaluation of the property of $140 000). I'm currently trying to sell my property for, hopefully $240 000, in order to buy a nicer one (municipal evaluation is now around $189 000). It is not my principal residence. Will I have to pay a capital gains tax?

We bought a condo for my mother in law to stay 8 years ago and she did not need to pay us rent. She moved to long term care last December and we sold the condo Feb 2013. We have a pinciple home. I don't know how to report the capital gain for the coming income tax return. Should we report the full amount of the different between the selling price and the purchasing price? should we deduct the mortgage interests, managment fees for those 8 years?

My wife and I want to sell our rural property. We bought 25 acres in 1974 and built a house. In 1980 we severed 21 acres for future sale or for our children. The 25 acres cost $9000. and the severed parcel was never evakuated. It was registered in both our names until later when we were advised to register in my wife's name. Now we are retired and want to move, I have been told by real estate to list it for $195,000. How does the capital gains tax apply?

I have a question regarding capital gains on publicly traded shares. My understanding is 50% of the gain is taxable at your marginal tax rate. What happens in the event that your marginal tax rate is 0, i.e. you do not work for one full year. Does that mean your capital gain is tax free? I highly doubt this can be true as the government always finds a way into your pocket but I haven’t been able to find an answer after hours of googling.

We are building a new home which we will be moving to in August. We plan to rent out our current home. We are still paying our mortgage on this home and we will really not be making any income. Do we still have to report rental income. Please help cos we are trying to decide weather to keep this home or sell it. Thanks.

Hi Cannime, We’d suggest you speak to a tax accountant but as far as we know, if you rent it, you have to report the income on your taxes. It will also cut into your principal residence capital gains exemption.

It is confusing to me. I need some help to interpret this.
My husband and I (both Canadians) bought a property in Ontario as join owners in 2003. Then we separated in 2011, at what time I moved away from our home and eventually moved internationally (visiting Canada regularly). I think because I am not in Canada for the required 183 days of the year I have a non-resident status. My ex husband stayed in the house (as his principal property) until now when we finally could sell the house. We only divorced in 2012. Do we both have to pay capital gains tax (if we have to pay at all)? From what year do we have to calculate this tax? The property stayed our principal residence for both of us. None of us bought any other property. Please help….

We currently live in our principal residence and are not builders by profession. We are planning to buy a new lot to build a new house as an investment property – we plan to claim all building expenses as business expenses. However, we think we may end up liking the new house that we will sell our own principal residence and move into the new house. What does that mean for capital gains? Is there a better time for us to do this ‘deemed disposition’? For example, should we convert the new lot to be our principal residence before the house is entirely finished so that the fair market value is lower? I am not familiar how it works when it comes to building a new house on the lot. Please help provide insight if you can. Thanks!

my husband and I owned an investment property, when we separated I transferred my share of the property over to my husband without receiving any money for the property
my husband is now telling me that I must pay capital gains tax on the house, is this true?

What about this situation: We have a rental house that was our principal residence for 2 years before we moved and began renting it out. We plan to live in it again for a couple of years before selling it (let’s say approx 30 years of rental in the middle). How are the capital gains tax calculated in that case?
I don’t think we ever claimed any CCA against the rental income, but my husband thinks we might have claimed a small amount, one year. Would that make any difference in re-establishing it as our principal residence?

Avoiding Cap Gains .. and Charitable donation/s. If stocks are donated, I gather that
the gains are not taxable. Is this option / benefit limited to Canadian corporations
or does it also apply to widely held big corporation stocks of British or American companies ?

What is involved to avoid capital gains tax by changing ownership to my grandsons of my country property. It is a 4 season home and I spend half a year there and and half a year in my city condo. What proof is required to show which one is my main residence and how long would I have to live there to proceed. My mailing address is now in the city condo for both properties. Would appreciate your advice L.S

Hi! I would like to purchase a condo for my senior citizen mother. She can’t afford a lot monthly so I need to put a lot down. In order to avoid a capital gain when she doesn’t need the condo anymore, Should I gift her the down payment, get a small mortgage in her name and have the condo willed to me down the line?

I just don’t want to see it as a rental property. Would it be beneficial to have both our names on title?

I have been asked by CRA to pay installments for capital gains that I have throughout the year. The thing is, I have NO idea what that would be or when I would have a gain. They base it on the previous years gains and expect me to pay tax quarterly.

If I paid this tax quarterly and had no gain, I would have to create a gain by selling stock just to get the $$. It doesn’t make sense to me.

My late husband and I purchase our home 40 years ago. Although from the same seller it was purchased as two separate abutting lots, The first with the house and the second vacant land. On our purchase it became one parcel.

I am now in the process of once again severing the property into the two parcels . My reasoning is that as two separate parcels it might be more valuable to my children when I die.

The purchaser of the house portion would have the first option to purchase the vacant lot. If they do not wish to purchase only then would it be sold as a separate parcel. This is clearly stated in my will.

My concern now is have I done the correct thing. Would there be capital gains on the vacant land if it was sold as a separate parcel. If so how would it be calculated.

My ex-wife is buying me out of our matrimonial home, however, we own a cottage property with two of her siblings. She is going to buy me out of my 1/6th share of the property. Would I have to pay capital gains on that amount? Also, my ex-wife and I jointly own a rental property with a friend and he is going to buy us out. We each own 25% of the rental property. Will we pay capital gains on that? Is there a way to avoid capital gains on those properties?

So If my spouse and I ‘gift’ our income property to our adult child and that adult child does NOT own another home … then the gifted property would be considered their primary residence and upon sale of that house …. the adult child would not have to pay capital gains ?

i had a sale fall through on my principal residence,because i thought the sale was a done deal i went ahead and purchased another home. i am currently living in that home,, because i was obligated to buying the home that i am living in, if i would have defaulted on the buying of this home i would have been sued.,the original home which was my principal residence has still not sold. when it sells do i have to pay capital gains?

My husband and his former spouse ‘divorced’ in 2007, in the separation agreement he kept the family home (which he purchased alone in 1996), she received a credit of $175,000.00 for the house in their settlement ( they also had a business together). In 2008 she began a court action against him…. long and short she received the house in Nov 2010. In Feb 2010 he changed the use of the house from principle residence to a rental property. Since he is now being audited by Revenue Canada, how is the best way to deal with the house? How can he claim a loss on it? The property had 10 acres of land around it.
HELP!!!!
Anjalla

I inherited my mother’s house and plan to keep it and mortgage it for roughly half it’s value. My brother will move in and pay rent but not for 6 months.
Should I apply for the mortgage now and get a copy of the appraisal for probate purposes or should I get a realtor appraisal now in order to settle the estate and apply for the mortgage closer to his move? Thank you

What happens if your parents give you a large sum of money to buy a house for them to live in? Is the money to purchase the home taxable? Since, it will be my second home, I will pay capital gains when we sell the house? I think I am right but wanted to clarify. or is it better to have them rent the house instead? Thank you

Scenario. In 1992 we bought a home for 80,000 and this was our main residence. In 2008 we bought a second home which became our primary residence, and rented out our first home. The value of our first home in 2008 was 350,000. In 2014, we sold the first home for 390,000.
It seems logical that we would only pay capital gains on difference from the 2008 value and the selling price.

$40,000 less 50% is $20,000 at about a $35% tax rate is about $7,000 owed in capital gains.

Divorce …. separated for 11 years ….. one spouse continues to live in the home then the other spouse not living in the home decides to buy the home as part of the settlement and wishes to fix up and sell it Is anyone taxed?

Hi Heather: Well, that’s a unique situation and the answer depends on paperwork. Did the married couple finalize their divorce? Have they been filing separate tax returns (thereby making them no longer a family unit, according to the Canada Revenue Agency)? How were the assets dealt with during the initial separation/divorce? And is the spouse who is not living in the home renting or did they purchase another home? Answers to any of these questions will alter whether or not there will be taxed paid. Simply put, though, there’s always capital gains tax on a property, it just depends on whether or not it’s sheltered under the Principal Residence Exemption (PRE) rule from the CRA. If the spouse who doesn’t live in the home wants to purchase the home outright (and then fix up and sell) then where they live is of paramount importance. If they lived in a rental for those 11 years, then the PRE could still be applied to the home and they would not have owe tax on the final sale of the home. If, however, they had bought another home and lived in it during those 11 years then they’d need to some calculations to determine which residence appreciated the most because that’s the residence they’ll more than likely want to use as their PRE (as it will get taxed the most). For the spouse that has lived in the home the entire time: they will not pay tax. Not on the sale of the home to the ex-spouse, or on the final sale of the home (should they still own a portion) simply because the tax on these sales are exempted under the PRE rule.
Hope this helps!

In 1969 we purchased our home for $500. In 1997, we received a plot of land with a fair market value of $3K. In 2004, it was assessed at $5K. In 2003-04, we built a cottage on the land out of supplies we had, so there are no receipts. We first started staying at the cottage in 2004, and have split our time between the 2 residences ever since. The assessed value of the cottage residence in 2014 was adjusted to $60K to reflect the building of the cottage (10 years later). Will we face capital gains on the $57K? ($60K – $3K)? Our original home from 2004 to 2014 went from $63K to $85K. Could we declare the cottage as the principal residence for 2004-2014 to shelter the $55K increase ($60K-$5K) from capital gains? If this is possible, then capital gains amount would be ~$36K less based on calculations below.

Principal residence exemption to deduct from your capital gain calculation is: ( (# of years home is principal residence + 1) x capital gain ) / # of years home is owned

if a parent transfers a income producing property (ie house) to their son or any other child as a gift or below Fair Market Value, there are capital gains tax implications whereby the transfer is deemed at Fair Market Value. What happens if the parent transfers it to a child’s girlfriend? Do the proceeds get deemed at Fair Market Value still since the girl friend is not really considered a relative? Thank you!!

I purchased a condo in 2005 for $212,00 – put about 50 thousand in improvements into it. I lived in it until Oct of 2012 when I got married (moved into husbands house), I left it empty until August of 2013 as I was unsure if I should sell or rent. When I moved out I did not think to have it appraised – BC Assessment 2010 was $312,000 but now BC Assessment 2015 is only $252,000 (this does not take into account the $50,000 in improvements). What $ amount will I be required to pay capital gains if the Condo sells for $310,000. I am retired and live on pensions.

Question we purchased a small acreage property with two houses , the smaller house we did extensive renovations and now rent it out. We are planning to sell and have subdivided to make two lots with a property on each. If we sell the large house which is our main residence and move into the rental would we have to pay capital gains ? thank you

From what you have said you would not have to pay capital gains tax on your principal residence—the large house—once you sell. However, you may have to pay capital gains tax on the appreciation of the land the large house sits on if it is over one-half hectare. You will also need to pay capital gains tax on the small house from the time you purchased the land to the time you moved in (making it your principal residence). Hope this helps.
Romana

I need help. I lived in the state of Oregon for 8 years. I was widowed, bought a rental home, but then only owned it for 1 1/2 years before I moved out of state to marry my 2nd husband. Now I look at the need to sell my rental in Oregon and I wonder if I will be subject to Capital Gains tax. I was not an ‘out of state investor’ at the time I bought the rental and thought I would live happily in Oregon with rental income before my circumstances changed. Now I’m on the outskirts of the state and have been managing my rental long distance in fear of cashing in on it. I simply can’t loose 31% on top of all other costs to sell it. Does anyone know if my circumstances protect me in any way ?

My parents currently own a cottage in Ontario., they live in the states. They would like to give me this property. Where do I begin to start this process? I am aware of this capital gains tax but don’t know where to start. Would it make sense to put the property into a family trust?

People work very hard for their money …we pay enough property taxes and house taxes when we buy homes. I as well as everyone is getting sick and tired of getting robbed left and right by the government and getting very little in return.

Hi Curtis,
If you sell your primary residence you are already exempt from taxes–under the principal residence exemption. That means you don’t have to reduce your capital gains tax hit, because you don’t have to pay capital gains.
That said, please let me offer a word of caution: Even if you lived in a condo, the CRA is clamping down on condo investments and flips. If you get flagged and audited and the CRA considers the revenue generated from the purchase, reno and sale of the condo as earnings or business income, then not only will you lose your principal residence exemption (which shelters all your profit from taxes) but you may also end up losing the capital gains status of those earnings and end up paying income tax on that profit.
Also, you cannot write-off the expenses incurred to renovate and update the condo. Those expenses can only be claimed *IF* you pay tax. Be careful. The CRA is wise to condo investors.

What would happen if you bought a house or condo as a first time home-buyer, but rented it out to someone else for a few years before moving in – would you have to pay capital gains on the those years? Even though you aren’t selling it at the point when you move in.

If you are going through a divorce and have a principle residence and a cottage. I am continuing to live in the principle residence but need to sell the cottage to pay off ex. Will there be a capital gain on the cottage? And if so how is it calculated?

My question is if I bought a house let say $500, 000 two years ago when 1 Canadian dollar was 1.15 US dollars. Two years later, I sold the house for $600,000 but the exchange rate is 1 Canadian dollar is 60 cents US. It looks like I had made profit in the eyes of the tax man but I actually lost money if based on the value of the dollar. Does the RCA take this into consideration? Thanks.

Hi Terry Smith,
Capital gains tax, on any appreciating investment, is calculated by taxing half of the total profit by your marginal tax rate. So, if you sold an investment property for $300,000 but had bought it for $200,000, you’d pay tax on $50,000 (half the $100,00 profit). If you’re marginal tax rate were 30%, you’d pay 30% of the $50,000 to the CRA (or $15,000 in tax). Hope that helps!
Romana

What about if have a rental property and because of the economy it was sold at a loss. I never took CCA (because of all the articles on it) on it but now don’t want to just have a capital loss. Is there any way to claim CCA in the final year to show a rental loss and offset against income?

The situation seems a bit complicated but hopefully I can explain it clearly over here. The principle residence needs to be appraised for the FMV at the time when you move out; then hopefully the value of the property remains the same value, then you should not be exposed to any capital gain; This situation assumes that you designate the rental home as P.R. after you move out; If the property appreciates, then there will be capital gain on the disposition.

How about you buy land and buid a house on it single handed. Just buying materials etc. Let’s say landlot is
$ 25.000. Someone stops by and wants to buy the place. What does that mean taxwise. The property is
remote, really remote, does that make a difference?

Hi i bought a house in 2006 for 320,000 It was my principal residence until Mar. 2014 and i rented it out ot not so good tenants so i took possession of the house back and lived in it for six months only and then got new tennants in March 2015 until now. I now want to sell my property and it is valued at 450,000 will i pay capital gains if i sell it now and can they be avoided if i move back and use it as my principal residence for a period and how long of a period would that need to be?

Is a couple subject to capital gain taxation on the sale of their primary residence which is situated on 120 acres of land? They do not qualify as farmers since their off farm income exceeds their farm rental income.

Am an excutrix of my late spouse last will , which was probated and i have life estate to the house he left but the estate is under his name and the land title under his name but was legally transferred under my name under Executrix so i have the power to sell it. 6 years after my late spouse passed away, i decided to sell the house and in his last will his estate has 3 benefiries , 2 adult children from previous marriage (divorced) and myself and it’s 1/3share and equally divided the net sale from the estate. My question is, Do the estate need to pay Capital Gain Tax? The house was sold higher than FMV when my late spouse died. I distributed the money with the 3 of us equally with the estate lawyer approval but i have not file last T3 nor clearance certificate for the estate before i distributed the money to the beneficiaries. What happen if the estate has to pay CGT and no more funding from the estate and the other 2 beneficiaries declined to give back the 1/3 share each of the calculated CGT? Can i take them to court to give back the funding?

My husband and I want to sell our recreational cabin and buy another one in the same area. If we make a $100,000 profit on this sale after deducting our original purchase price plus improvements, would we pay capital gains on only 50% of the profit and get to split that in our income tax as the cabin is in joint names. Also, is the capital gains taxed at only 1/2 of our marginal tax rate? Thank you Gail Davis

Hi Gail,
Thanks for the question and it sounds like you have a pretty good grasp on the situation. If you sold your current cabin and earned a profit, this profit would be subject to capital gains tax — a tax imposed by the CRA that’s based on your marginal tax rate. So, if you earn enough to slot you into a 30% tax bracket, then the earnings from the sale of the cabin would be taxed at this marginal tax rate (perhaps more, depending on how close you are to the next tax bracket). Yes, both you and your husband would claim half the profit each, paying half the tax each. However, the tax rate isn’t half your marginal tax rate. Capital gains tax is preferred by investors because only half your profit it taxed. That means a $100,000 profit, would have you and your husband claiming $50,000 in profit. Half of the $50,000 would then be subject to tax, based on your marginal tax rate. Hope this helps.

Hi. can I avoid capital gain tax because of mental health issue? my wife didn’t like the new condo and she had mental health challenges so I had to sell my unit before we move there and it seems I have to pay capital gain, is there any way I can avoid capital gain? our intention was living there but I had to sell it and buy somewhere that she feels better about it. please advise. thanks

Hello,
I have question. I bought a Town home which is in building phase and builder allowed me the assignment. the property appreciated pretty good within 9 -10 months and I am thinking of selling it. I am right now living on rent and this is the only property I have, I have not yet applied for mortgage or any sort of approval. I am seeing a good amount of capital gain by selling this property an dI have also finished paying off the down payment. If I sell it how this will be taxed. See calculation below.

Property Original Value 380K

Can be sold for 465K

Gains= 85K + Down Payment which I paid.

I am already in the tax bracket of Family Income 69K.

How this will affect my taxes, how much I will end up paying as tax. This property closing date is Dec 2017. so its like a typical assignment sales in Canada.

I have a home in the city for 20 years and purchased a cottage 15 years ago for $200k. I have since add $400k of additions and improvements to the cottage. I have retained all the receipts for the work. Is my new ACB $600k for the cottage? If I sell it in the future for $600k will I therefore have no capital gains?

My wife and I own a condominium and rent it out. How could I legally make it my principal residence when the tenant leaves and I wish to sell it? It will have to be renovated before I can sell it. Could we move into it my principal residence? Is there an amount of time that would exonerate it from cc?

When calculating the capital gain of a house, does the calculation allow for inflation?
For example: $1.00 in 2006 had the same buying power as $1.20 in 2016.
So a house purchased 10 years ago for $100,000 then sold in 2016 for 150,000. Is the capital gain
$150,000 – cost of $120,000 = $30,000
Or
$150,000 – cost of $100,000 = $50,000
I would hope the answer is $30,000. Otherwise I believe CRA is imposing unfair taxes